"Resilience and Headwinds"

"The response to Katrina reveals
appalling open breaches in our society," says a skeptical Harry
Schultz. "Indeed, the failures are ‘institutional’ and underscore
our innate distrust of all governments and institutions." Here’s his assessment
and top stock picks.

"Our in-house oil analyst, Gordon
Frisch says: ‘Looking at the big pictureof how Hurricane Katrina has impacted the oil
industry, I think an even bigger impact will be felt on the US economy and will
tip the US into recession. Implications are long-term. The two- and three-year
yield curves inverted yesterday, another harbinger of recession. What Katrina
did to US wholesale and retail oil markets was last felt this painfully
during 1973’s OPEC oil embargo. This time Mother Nature imposed the squeeze
instead of OPEC.' This assessment may bring forward my recession forecast for
2007-2008.

"Meanwhile, the US stock market remains outwardly resilient
despite growing headwinds. Savvy NYSE specialists, who have an excellent track
record, continue to embrace the market whilst the wrong way odd-lotters are
shorting at record-breaking levels. Sentiment data in general is excessively
bullish and whilst this data says nothing about timing, it clearly hints we
in the last stage of this bear market secondary rally—which always
end with mega optimism.

"Interestingly, US investors put
more money into world funds than US stock funds over the last five months.
Diversification normally rewards, but signs of fatigue are now surfacing in
charts of world stock markets, notably Europe. Differentiating between the end
of a bear market rally and a simple pause for breath is always the hardest stage
to analyze. As technical hints of major tops remain absent we favor a pause, but
by nature bear markets often surprise to the downside, so placing stops
(and/or tightening) is strongly recommended on all long positions.

"As for individual stocks, our top pick in
the US right now is Alpha Natural Resources (ANR NYSE),
which is a play on coal. We suggest buying a bit
at market and/or buy if it dips to 28.85. We suggest a stop on a one-day
close below 25.40. Our current top pick in Canada is a speculative play,
Energy Metals (CA:EMC Toronto). The stock is a
play on uranium and vanadium. Gamblers can buy a bit at the market or wait for
dips to $3.30. Use a stop on a one-day close below
$2.80."